Sentiment slips amid stock jitters

An unexpectedly weak reading on U.S. consumer sentiment on Friday overshadowed encouraging reports on industrial production and business inventories.

The University of Michigan's preliminary June consumer sentiment index fell to 90.8 from 96.9 in May. Forecasts had been for the index to slip only slightly, to 96.8.

Separately, the Federal Reserve said industrial production rose 0.2 percent in May, its fifth monthly gain in a row, and the Commerce Department reported that business inventories dipped 0.2 percent in April, falling for a 15th straight month and matching analysts' expectations.

The University of Michigan sentiment survey came a day after a government report showed retail sales fell by a larger-than-expected 0.9 percent in May, spurring fears that consumers, the bulwark of the economy over the past year, will cut back on spending.

"It's very disconcerting," said Anthony Karydakis, senior financial economist at Banc One Capital Markets. "Consumer attitudes are caving in in response to the stock market."

Others were less concerned. "It would be premature to draw the conclusion that the consumer is beginning to collapse," said Stephen Stanley, an economist with Greenwich Capital Markets in Greenwich, Conn.

The Fed's production report showed a drop in the output of automobiles and communications equipment but higher production of computers and appliances. The gain was a bit weaker than the 0.3 percent increase expected by analysts.

"It's good news, but not exuberantly good news," said Tim O'Neill, chief economist at Bank of Montreal.

The Commerce Department report on business inventories bodes well for economic growth because as inventories get leaner, factories must boost production to replenish stocks.

"Clearly, the warehouses, storerooms and shelves are barren, and production needs to be ramped up," said Richard Yamarone, senior economist with Argus Research Corp.